where

MainmeetsStreet
the
C-Suite
The 2009 Directorship/Deloitte survey, in
conjunction with Korn/Ferry International, of
Main Street and C-suite attitudes on
corporate governance, the economic crisis,
and the role of the board director.

The economic crisis of ‘08 has led to a sea change in
how Americans think about business and the board-
room. For the board director, it has led to new and
proposed regulations, changes in corporate gover-
nance processes, and a fundamental shift in attitude
about the obligations that business has to the citizenry.
The crisis has even caused some social commenta-
tors to question our nation’s willingness to accept the
traditional business cycle in which a long period of
uninterrupted growth is followed by an unforeseen
retraction. These are short-term views to be sure, but
directors need to be alert to their consequences as
they bear directly on the most important role the
board plays: the selection of appropriate strategies
that keep risk and reward in an acceptable balance.
While a global systemic breakdown has been de-
clared the culprit by most leading economists, in-
cluding Federal Reserve Chairman Ben Bernanke,
popular opinion and the media have focused on the
failure of risk-management processes at our leading
banking institutions, and the cascade effect that had
on all companies. Thus, the scrutiny and criticism to-
wards management and board directors has been
more pointed than in previous declines. While direc-

26 Directorship December 2009/January 2010

tors are moving swiftly to restore confi- To embark on such a mission, directors
dence in their institutions’ corporate gov- need to know what people are thinking
ernance, there is an equally urgent need and saying, and why. To obtain these im-
to set the record straight with regard to portant insights, Directorship and De-
how most boards performed versus the loitte collaborated to study the matter in
few in the spotlight, as well as the signifi- detail, and in conjunction with Korn/Fer-
cant contributions now being made to- ry International, set out to determine how
wards recovery. the broader community—defined as
“Main Street”—views the boardroom. In
the course of our research, the opinions of
Methodology teachers, laborers, policy makers, doctors,
The “What Society Thinks?” students, academics, and community
survey was conducted via email leaders were sought (see Methodology, op-
to specific segments of the posite). To gauge and compare those data
Directorship database and online with inside-the-boardroom views, we also
at www.directorship.com between
asked the opinion of the C-suite, which
September 25 and October 29. The
total number of respondents was 324. includes board directors, chairmen,
Each respondent was asked to select CEOs, and members of management.
the group that “you most identify The objective of “What Society Thinks?
with” from the following: (about boards and business)” was principally
I Board director to establish a baseline that, reviewed over
I C-suite time, would record changes in perceptions
I Management and point to where education and reform
I Academic faculty are needed, in terms of public opinion. In-
I Journalist dependent directors, says Henry Ristuccia,
I Analyst Deloitte & Touche LLP partner and U.S.
leader of Governance & Risk Management,
I Policy maker
need to step back and determine the moti-
I Main Street (non-managerial, stu-
dents, others) vating factors for this perception and to the
extent that there is genuine longer-term rep-
10% utational risk. “The reason we contributed
Board 10% to this study is because we sensed a shift in
Director
C-suite perception, but wanted to be able to point to
the exact causes. How dramatic has the
35% change been? That will be answered by the
Main research and subsequent studies every six
Street
23% months. What matters most are the lessons
Mgmt
3% we can learn. It’s the same old issue that, if
Policy you don’t address the problem, then the reg-
maker ulators and legislators will do it for you.”
7%
Analyst 6% While many studies have focused on the
6% Academic
Journalist Faculty more obvious question of “what the board-
room thinks,” there was a growing sense on
the part of Directorship’s editors that a new
measurement could be used to inform
boards of directors what others think about
them. As the data was analyzed, it was
28 Directorship December 2009/January 2010
clear the results were instructional and
constructive for its implications to directors
and the C-suite at large. “There are always
lessons to be drawn from challenging times,
and today is no exception,” says Ray Lewis,
managing partner, Deloitte LLP’s Center
for Corporate Governance. “There are
areas that proactive boards will focus on im-
proving, whether they are about processes,
sensitivities, or simply risk vs. reward met-
rics. In reviewing the data, we cannot pre-
dict whether societal attitudes will change
quickly upon recovery or whether this is a
longer-term shift. But providing directors
and CEOs with a deeper understanding of
the environment in which we are working is
an important step.”
The institutions and organizations that
share a commitment to good corporate gov-
ernance are well aware of a shift in the pub-
lic’s perception about boards and business,
and have already taken action to address the
issue proactively. In the fall of 2008, for
example, the National Association of Cor-
porate Directors (co-publisher of NACD
Directorship) released Key Agreed Principles
to Strengthen Corporate Governance for
U.S. Publicly Traded Companies to show
that boards are “leading the way” in restor-
ing public and investor confidence in
American boardrooms and C-suites. The
initiative has launched a series of white pa-
pers, peer-to-peer meetings and, most re-
cently, a Blue Ribbon Commission on Risk
Governance (see related article, page 46).
Directors should also be willing to en-
gage in a role that helps shape public opin-
ion, says Steve Mader, vice chairman and
managing director, of Korn/Ferry, if for no
other reason than it is good for business.
“We spend all our time on shipwrecks.
Few would dispute that based on results, a
small number of boards did not perform
for their shareholders and their compa-
nies,” Mader says. “But my point is every-
one, and especially directors, should join
in the fight to shape public opinion rather
than allowing it to be shaped for them. In
the capital markets, value goes up and
down by trillions of dollars driven by sim-
ple sentiment. That’s a trillion-dollar capi-
tal-formation challenge every morning.”
Seeking Answers
The specific objective of “What Society
Thinks?” was to distinguish the views of
select groups on a variety of board-specific
topics now the subject of intense debate,
study, media attention, and regulation: for
example, public opinion on issues ranging
from accountability and transparency to
environmental and social responsibility.
Also examined was how well society un-
derstands the board’s role in dealing with
issues such as corporate governance, com-
pensation, labor, ethics, risk management,
and the environment. How does society
perceive the board’s role vs. the CEO? And
how do the board and management see
themselves in these contexts? These are
the questions that the research set out to
explore. “The intensity of negative publicity
around American business, particularly in
the automotive and financial-services sec-
tors, has created a ripple effect at the corpo-
rate-governance level,” says Nels Olson,
managing director of Korn/Ferry’s Eastern
region and senior client partner in the
CEO and Board Services practice. “On an
annual basis, Korn/Ferry advises hundreds
of boards on their composition and the se-
lection of new directors. At the end of the
day, consumers are the shareholders and
we need to understand their perceptions, so
we can properly guide our clients.”
The Directorship/Deloitte survey was
organized into five broad categories: board
duties and compensation, board responsi-
bilities, opinion of board directors and
CEOs, the economic crisis, and director
and CEO compensation. In all, 39 ques-
tions were asked, including:
I How would you assess the credibility of
board directors and CEOs today and how
effective have they been during the eco-
Advisory Council
nomic crisis?
I Did CEOs and directors adhere to good Raymond Lewis
corporate governance standards? Partner, Deloitte LLP, Center for
Corporate Governance
I How many hours do directors work and
how much should they work? Henry Ristuccia
I Is what directors and CEOs get paid Partner and U.S. Leader, Governance
& Risk Management, Deloitte LLP
fair?
I Should CEO compensation be capped Maureen Errity
Director, Center for Corporate
and tied to company performance? Governance, Deloitte
I How familiar are different constituen-
Natalie Cooper
cies with the responsibilities of a public-
Senior Consultant, Center for
company board director? Corporate Governance, Deloitte LLP
I Should the role of the chairman and
Nels Olson
CEO be separated? Managing Director,
I What motivates CEO performance? Korn/Ferry International
I Was criticism in the media of board Steve Mader
directors during the economic crisis fair? Vice Chairman and Managing
I Was criticism in the media of CEOs Director,
Korn/Ferry International
fair?
I Who was most responsible for the eco- Megan Shattuck
nomic crisis? Chief of Staff, Board and CEO
Services, Korn/Ferry International
The Results Paul Albert
Chairman, Albert Investments
Most board directors and C-suite officers Director, DigitalGlobe
recognize that negative headlines and
John Elliott
media glare are part of the process by which
Dean and Professor of Accountancy,
our nation engages in a public debate about Zicklin School of Business, Baruch
who did what to whom, assesses right and College, The City University of
wrong, and assigns fault and responsibility. New York
The short-term result is that the boardroom Barbara Ettorre
has been painted with a rather broad, black Principal, The Dilenschneider Group
paintbrush, which colors over much of the Richard Huber
very challenging work that boards have Director, American Commercial
Barge Line, AquaBounty
undertaken, particularly in this recovery Technologies, Covanta Energy,
phase. The lack of attention to the board’s Gafisa
positive impact is not limited to Main Street,
Kenneth Kopelman
however, as the research shows. The credi- Partner, Kramer Levin Naftalis &
bility of board directors is an issue even Frankel
among directors themselves, and somewhat Director, Liz Claiborne
dramatically, the broader C-suite. Stuart Levine
So what does society think about boards Chairman and CEO,
Stuart Levine & Associates
and business leaders? The most crucial ele-
ment of the survey—and the motivation Thomas Opladen
behind Directorship conducting it—was Managing Director,
Kestrel Consulting
to discover how the credibility of directors
and executives has held up through the re-
December 2009/January 2010 www.directorship.com 29
cession as well as during the recovery peri-
od, and how this compared with directors’
self evaluations. Readers will not be at all
surprised to learn that when society has a
problem with business, it points to the
CEO and by extension, to the board. And
while the negatives are palpable, they also
augur a change in the zeitgeist for the
boardroom and how it must deliberate and
communicate.
When asked to rate the credibility of
directors today, less than half, or 43 percent
of our survey responded with “poor,” while
39 percent gave an “adequate” rating.
These data are somewhat predictable, given
the circumstances and the economic angst.
Among the naysayers, academics were the
harshest, with a full 100 percent of respon-
dents labeling directors either poor or ade-
quate. If there is a concern that goes beyond
the numbers, it is a fear that teachers can
and do have a dramatic impact on the opin-
ions of our youngest and most impression-
able. The conclusion is that broad efforts

Opinion of Board Directors and CEOs

Effectiveness of Board Board Director Adherence
Credibility of Board Director Oversight During to Good Corporate
Directors Today the Economic Crisis Governance Standards
1% 1% 4%
Outstanding Outstanding Outstanding

17% 13%
Good Good 22%
36%
43% Good
29% 57% Poor
Poor
Adequate
39% Poor
38%
Adequate
Adequate

Breakdown by Category
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43% 39% 17% 1% (of respondents) 57% 29% 13% 1% (of respondents) 36% 38% 22% 4% (of respondents)

Directors C-suite Management Academic

30 Directorship December 2009/January 2010

must be made to address and explain the
role of director in our classrooms.
How They Performed
When asked to measure themselves, fewer
than half the director population gave
themselves a “good” rating at 42 percent.
CEOs fared similarly, with almost identi-
cal results as their board counterparts—81
percent scored themselves as “poor” or “ad-
equate.” Only this time, journalists were
more critical, with 100 percent giving
them “poor” or “adequate” ratings (com-
pared to 95 percent for directors). The non
C-suite management respondents pointed
to a potential fault line, with only 17 per-
cent giving CEOs a “good” rating.
Much of directors’ and executives’ credi-
bility problem stems, predictably enough,
from the Wall Street crash. But while their
duties and responsibilities differ widely,
directors and CEOs were lumped together
in terms of credibility. Both directors and
C-suite officers received “poor” or “ade-

Effectiveness of CEO and CEO Adherence to Good

Credibility of CEOs Management During the Corporate Governance
Economic Crisis Standards
1% 3% 3%
Outstanding Outstanding Outstanding

17% 17%
Good 44% 20%
Good 45% 38%
Good
Poor Poor Poor
38% 35%
Adequate Adequate 39%
Adequate

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44% 38% 17% 1% (of respondents) 45% 35% 17% 3% (of respondents) 38% 39% 20% 3% (of respondents)

Journalist Analyst Policy maker Main Street

December 2009/January 2010 www.directorship.com 31

quate” ratings of 86 percent and 80 percent, agreed with the statement, what was sur-
respectively, in how they dealt with the fi- prising is that an astounding 34 percent of
nancial crisis. Again, academics and jour- the C-suite chimed in on the same side. Di-
nalists were harsher than other respon- rectors spend a great deal of time on em-
dents, and, again, directors were some- ployee issues, in addition to the obvious one,
what at odds with the C-suite (42 percent compensation and incentives. Nonetheless,
of directors gave themselves “good” rat- there still exists a perception problem on the
ings while 32 percent of directors gave part of employees that boards must remain
such a rating to the CEOs). Adherence to sensitive to and consider.
proper governance conduct drew respons- Directors’ work and pay are both subject
“Everyone, and especially directors, should join in the
fight to shape public opinion rather than allow it to be
shaped for them. In the capital markets, value goes
up and down by trillions of dollars driven by simple
sentiment.” —Steve Mader, vice chairman, Korn/Ferry
es along similar lines, with directors and to a great deal of misperception. It is one
CEOs earning “poor” and “adequate” rat- more area for the board to consider how to
ings from 74 percent and 78 percent of re- better communicate their contribution
spondents, respectively. and efforts. Adding to this, the media often
plays up the director as overpaid and under-
What Employees Think worked; with many critics pointing to sig-
It’s worth noting that the research showed nificantly reduced working hours as evi-
directors need to address a critical issue dence. Part of this criticism is simply not
concerning employee well-being. Overall, grounded in fact or definition—a board
45 percent of respondents disagreed with seat never was intended nor has ever been
the statement, “Directors are concerned presented as a traditional full-time respon-
about employee well-being.” While jour- sibility—but the perception of a limited
nalists, academics, and analysts also dis- time commitment tends to frame how
40
Do spend
How much time
42% Should spend
do you think
board directors 30 35%
do spend/should
spend on board
duties each 20 25%
month? 22%
20% 19%
10 16%
7% 7% 7%
0 boardroom equivalent of measuring class-
<10 hours 10 hours 20 hours 30 hours >30 hours
32 Directorship December 2009/January 2010
many sectors of society view the board di-
rector. Some 42 percent of survey respon-
dents believe that directors work fewer
than ten hours each month; again, point-
ing to a surprising misconception even in-
side the company, the sector most inclined
towards this view were the survey’s C-suite
respondents, of which 55 percent con-
curred. Some 52 percent of upper-level
managers also estimated directors’ work-
load at below 10 hours a month, with direc-
tors themselves—or 42 percent of them—
actually estimating their monthly require-
ments as closer to 20 hours.
As to how many hours our WST respon-
dents thought directors should work per
month, 57 percent thought board mem-
bers should put in between 10 and 20
hours a month, with 19 percent saying the
total should be more than 30 hours.
Though C-suite members and other man-
agers fell in line with the 10-20 hours esti-
mates, academics, journalists, and Main
Street were more exacting, responding that
directors should work between 20 and 30
hours a month.
In reality, according to the newly re-
leased 2009 NACD Public Company Gov-
ernance Survey, the average number of
hours dedicated to board work is 222 hours
a year, or nearly 20 hours a month: essen-
tially in line with the most critical of soci-
ety’s expectations. This becomes then a
matter of perception, not fact. What ac-
counts for this time? The NACD survey in-
dicates directors spend the majority of their
time reviewing reports and other materials,
attending in-person and telephone meet-
ings. In terms of in-person meetings alone,
the majority reported an average rate of 6.1
in-person meetings a year, each meeting
averaging 6.6 hours. It is clear that the
majority of the Main Street respondents
equate a director’s time commitment to
their in-person meeting duty only, the
room time while ignoring homework. That
they may spend additional hours in study,
research, and other communications is not
being recognized.
What Directors Do
While the duties of a CEO are more-or-less
evident (run the company), the consulta-
tive nature of the director’s work does not
lend itself to easy classification (lend ad-
vice and personal expertise to an executive
team while negotiating with and represent-
ing shareholders and concerned third par-
ties, etc.). The survey found, however, that
most respondents claimed to be familiar
with the work of a corporate board mem-
ber, with 76 percent agreeing or strongly
agreeing with that claim. Even Main Street
claimed to be reasonably well acquainted,
with 60 percent agreeing that they were
familiar. And 88 percent of the total sur-
veyed agreed that board directors had an
impact on their company’s performance.
Oddly enough, once again, the category of
respondents most in disagreement with the
director’s impact on performance (with 19
percent) was the non-CEO members of
the C-suite, which suggests that directors
and senior executives don’t always see eye
to eye.
Survey of Board Responsibilities*
Strongly Strongly
Disagree Agree
Disagree Agree
I am familiar with the responsibilities of a
public company board director
6% 18% 46% 30%
Board directors are concerned about
employee well-being
7% 38% 48% 8%
Board directors have an impact on their
company's performance
2% 11% 51% 37%
Board directors are aware of the effect
their companies have on the environment
6% 35% 44% 15%
*All respondents
Which of the following
significant management
initiatives should require
board-level approval?
CEO Succession 85%
Mergers & Acquisitions 80%
Executive Compensation 75%
Capital Structure 73%
Strategy 67%
Ethics 65%
Risk Oversight 64%
Acct’g & Finance 52%
Legal 37%
26% Employee Benefits
21% Diversity Hiring
0 20 40 60 80
When asked where they thought direc-
tors should lend their voice, the manage-
ment initiatives that our respondents felt
should be approved by directors were CEO
succession (85 percent), M&A (80 per-
cent), executive compensation (75 per-
cent), and capital structure (73 percent).
The areas where directors should stay
clear? Mostly day-to-day matters such as
diversity hiring (21 percent), employee
benefits (26 percent), and legal matters (37
percent). These three categories were also
areas that directors themselves felt did not
require their approval, demonstrating that
while the general job requirements of a
director may be intensifying in the areas of
risk oversight and compensation, they are
not necessarily looking for a broader job
description.
Splitting Roles
The debate of the hour—or one of them—
concerning the ideal leadership structure
consistently returns to the question of
whether the same person should hold the
title of chief executive and chairman. As
the Directorship/Deloitte survey results
December 2009/January 2010 www.directorship.com
What They Think
[Who is to blame?] “All of us. The Fed-
eral Reserve for keeping interest rates
too low; Congress for irrationally stimu-
lating the housing market for obvious
political gain; regulators for not com-
prehending the risk embedded in the
firms they were charged to oversee;
consumers for running wild with easy
credit and driving the nation into a neg-
ative savings rate; academics for not
having the insight consistently to under-
stand the nature of the problem that
was brewing; and executives and direc-
tors for also failing to understand and
react to the problem that the rest of the
regulatory, legislative and intellectual
100
establishment also failed to appre-
hend...Most directors were essentially
bystanders to the crisis.”
Joseph Grundfest
Stanford School of Law
“Boards and businesses in general have
been subject to incredible levels of criti-
cism, some of it justified but perhaps
some of it unfair. But it is clear that ef-
fective boards and board members
and, in fact, effective business people
are reacting with sharpened focus and
will use these significant learnings to
foster subsequent achievement. We all
look forward to meeting the challenge.
Ray Lewis
Deloitte LLP
“With the tumbling and collapse of
dozens of major financial and other in-
stitutions, can we draw any conclusion
other than that those directors utterly
failed?”
Carl Icahn, investor, writing in
The Washington Post
33

What They Think
[Who is to blame?] “Congress for re-
pealing Glass-Steagall, forcing Fannie
and Freddie to over-extend mortgages
and refusing to regulate CDS, the Fed-
eral Reserve Board and Alan Greenspan
for interest rate policy and flooding the
market with liquidity, the Treasury and
the bank regulators for lax supervision,
and institutional and activist investors
for demanding earnings growth that
could only be achieved by speculation
and ultra-high leverage...I think boards
performed very well both before and
after the crisis struck.”
Martin Lipton, founding partner,
Wachtell, Lipton, Rosen & Katz
“What’s at fault is a system that has cre-
ated an emphasis on short-term values,
as opposed to sustainable values.”
David Greenberg,
executive vice president of knowledge, LRN
“As much as I believe in free markets,
the problem is that you can’t have a
business as vital as banking…without
oversight. You also can’t have a busi-
ness that is deemed too big to
fail…without someone watching the
store.”
Charles Gasparino, CNBC on-air editor,
and author of The Sellout, from his book
34 Directorship December 2009/January 2010
demonstrate, differences in opinion on the
question were striking. All combined, 86
percent of respondents agreed that the role
should be split. Ironically, directors were
less likely than the C-suite to welcome the
split (63 percent of directors versus 79 per-
cent of C-suite respondents). Analysts, jour-
nalists, and academic respondents all over-
whelmingly support splitting the role.
Some possible interpretations of this strik-
ing difference in opinion is that some con-
stituents seem to want a less powerful CEO
or a more empowered board representative,
or some CEOs recognize that governance
is a full-time occupation that may reduce
the time required to run business.
Bankers, regulators, politicians, and
mortgage borrowers were deemed most re-
sponsible for the economic crisis. And
when asked which of the same groups
would be most responsible for the econom-
ic recovery, respondents more positively
pointed to executive teams and CEOs.
Directors and CEOs see themselves as part
of the solution, whereas some 52 percent
of journalists ranked regulators as the most
responsible for better times ahead. Survey
Which groups are the most
responsible for the economic
crisis?
Bankers 71%
Regulators 58%
Mortgage Borrowers 54%
Politicians 54%
CEOs 52%
Traders 49%
Board Directors 42%
31% Executive Teams
15% Journalists
0 10 20 30 40 50 60 70
respondents, when asked the question of
whether the media had been fair in its crit-
icism of directors and CEOs, largely con-
curred that they had; 77 percent of respon-
dents felt director criticism was fair, while
82 percent felt CEO criticism was fair.
Journalists led the pack in this regard, with
95 percent agreeing or strongly agreeing
that the media had been even-handed in its
treatment of the matter.
Business leaders themselves have been
mostly resigned to the media backlash.
When it came to the criticism leveled
against CEOs, 62 percent of directors and
70 percent of C-suite officers agreed that
such criticism was fair. However, when it
came to criticism against directors, nearly
half, or 48 percent, agreed with the fairness
of the criticism (as compared to 63 percent
of C-suite officers). And, again getting to
the heart of what has swayed public opin-
ion away from directors and executives, the
“Main Street” view was firmly in accor-
dance with media criticism, with 86 per-
cent agreeing with such criticism of direc-
tors and 78 percent agreeing with similar
critiques of CEOs.
Which groups are the most
responsible for the economic
recovery?
Executive Teams 43%
CEOs 34%
Board Directors 29%
Politicians 27%
Regulators 27%
Bankers 19%
15% Journalists
11% Traders
8% Mortgage Borrowers
80 0 10 20 30 40 50
The Money
Though there are certainly a multitude of
unique issues facing Corporate America
today, we often return to our favorite
theme, the money. Most of the “What
Society Thinks” survey respondents agreed
that compensation was an important issue;
when asked why CEOs are motivated to
perform, compensation led the pack with
73 percent of respondents listing it as a
main motivator (“accomplishment” was
second, with 60 percent).
But how does society view present com-
pensation policy? Well, as the headlines re-
flect, an overwhelming majority (77 percent,
including 70 percent of directors) believes
CEOs are overpaid, with 22 percent report-
ing that CEO pay is adequate as it stands.
As for directors, who haven’t received as
much attention for their compensation
compared to what was handed out to high-
profile executives, 49 percent of respon-
dents said they were adequately paid, 41
percent said they were overpaid, and the
remaining 10 percent said that board
members should be paid more.
Another issue: the correlation between
What Influenced the Economic Crisis?
Ethical Lapses
Lack Information on Risk
Lack of Director Industry Experience
Lack of Regulatory Oversight
Lack of Management Experience
Over-Confidence of Management
Over-Reliance on Business Models
Strategic Errors
Use of Derivatives, Exotic Instruments
company performance and compensation
What They Think
levels and the question of whether it
should or should not be capped, received a “There’s enough blame to go all the
unilateral vote. Though 52 percent of re- way around...It’s hard to blame the
spondents said CEO salary should be directors themselves, because they
capped, and a somewhat surprising 48 per- weren’t aware of what the hell was
cent said it should be uncapped, 94 per- going on...Boards need to understand
cent agreed that, in any case, compensa- within the framework of the modern
tion should be linked to company perform- world about what boards can/should do
ance. As for just how much CEOs should in these complex companies at these
make (in the event that compensation is in- times and make sure they have both the
deed capped), the results were more knowledge and the time necessary to
diverse. However, most people (67 per- manage the company…I think that’s
cent) believed that CEO compensation at where it all starts.”
a large-sized company should fall at or be- Jay Lorsch, Harvard Business School
low $10 million. C-suite officer respon-
dents were naturally the most generous on “It doesn’t serve anyone if corporations
this issue, with 26 percent proposing a cap are served by a system that doesn’t give
of $20 million, and 16 percent suggesting directors the knowledge needed to as-
$100 million. For those in the trenches, 82 sess risk.”
percent of “What Society Thinks?” respon- James McRitchie,
dents agreed that employees were under- publisher of corpgov.net
paid compared to the CEO, with ratios of
10:1 (25 percent), 20:1 (31 percent), and “There are some things [in governance]
50:1 (21 percent) being the most popular that need to be fixed, but when you
of those proposed (multipliers of 100, 250, look at the breadth of companies, they
and 500 were less popular). do very well and do very well for their
shareholders—to make quick holistic
changes can have unintended conse-
quences.”
Jeffrey Morgan, president and CEO,
Did not Somewhat Strongly
National Investor Relations Institute
affect affected affected
4% 36% 60% “While the financial crisis destroyed
6% 24% 71% careers and reputations, and left many
more bruised and battered, it also left
27% 49% 24%
the survivors with a genuine sense of in-
6% 21% 73% vulnerability at having made it back
from the brink. Still missing in the cur-
35% 48% 17%
rent environment is a genuine sense of
4% 37% 59% humility.”
Andrew Ross Sorkin,
11% 42% 48% New York Times editor,
as quoted from his book, Too Big to Fail
5% 34% 61%
5% 25% 70%
December 2009/January 2010 www.directorship.com 35

What They Think
“Boards are clearly—and will be increas-
ingly—important to the effective man-
agement of financial institutions…the
restoration of confidence in the integrity
of our financial institutions is highly
dependent upon a more thoughtful and
rational approach to compensation by
boards.”
Mary Schapiro, chairman,
Securities and Exchange Commission
“We can tinker with the procedures, but
large global company directors cannot
be effective with current structures. We
should have a small number of directors,
each of [whom] is concurrently serving on
no more than two boards, and their pay
should be increased accordingly. This
model is needed to monitor effectively
everything that needs to be monitored in
a modern corporation.”
Robert Pozen,
chairman, MFS Investment Management
“...The list of guilty parties involved in
bringing on the current economic situa-
tion is long, and boards do belong on it.
Just don’t put them near the top. That
would give them too much credit for a
job they couldn’t do.
Jack Welch,
former chairman and CEO, General Electric
36 Directorship December 2009/January 2010
Looking Forward
There are numerous possible conclusions
to be drawn from the research. Many sec-
tors bear responsibility for the crisis that
are not always part of the popular discus-
sion, including, for instance, homeown-
ers who over-extended themselves. A fur-
ther overarching question is that of the
responsibility of institutional investors to
perform more thorough due diligence on
risk, and limit their reliance on the credit-
rating agencies while restricting their
appetite for short-term highest yield at
any cost. That’s an area of oversight now
of fervent interest to the Securities and
Exchange Commission, which has in
recent months expanded the resources
and staff of the Office of Investor Educa-
tion and Advocacy.
Other possible reactions are that it will no
longer be practical for the boardroom to re-
main a closed inner sanctum while the
world of Internet, media, blogs, and word of
mouth presses for more information with ac-
curacy playing second fiddle to timeliness.
“What Society Thinks” reveals that
directors need clear guidance on public
attitudes and equally clear strategies for
responding to them. “The findings sup-
port our belief that as directors continue
to aspire to be more productive and more
effective, knowing what the investor com-
Board Director and CEO
Compensation
80
77%
Board Directors
60
CEOs
49%
40
41%
20
22%
10% 0%
0
Underpaid Adequately Paid Overpaid
munity and the broader public thinks
about the boardroom will only enhance
both the role—and we hope the
image—that the board director plays, par-
ticularly as our country and companies
make their way back to recovery,” says De-
loitte’s Lewis. The findings also suggest
that getting engaged with the share-
holders in corporate governance
matters—while seeking appropriate legal
counsel as well as ensuring that manage-
ment and the board speak with one
voice—will be a significant contributor to
improved perceptions.
Should directors be worried? If you ac-
cept that business is cyclical, perhaps some
of this negativity will dissipate as the recov-
ery takes hold and the memory of the loss
becomes stale. The research points to
some obvious remedies: establishing best
practices for board processes, making sure
the board’s composition is perfectly at-
tuned to the company’s strategic needs,
and a firm willingness to work as hard as
the new director role will require, are im-
peratives. Important new responsibilities
will include effectively communicating to
lower ranks of management and employees,
in addition to investors, and finding ways to
make their work known to the Main Street
public. Compensation will continue to be
a focus, so knowing how to structure a pro-
gram that stands up to various fairness tests,
and to be able to tell that story well may yet
be “job one” for a while longer. Perception
is reality. D
As used in this document, “Deloitte” means De-
loitte LLP and its subsidiaries. Please see
www.deloitte.com/us/about for a detailed de-
scription of the legal structure of Deloitte LLP
and its subsidiaries. In the United States, Deloitte
provides audit, consulting, financial advisory, risk
management and tax services to selected clients
through more than 40,000 employees in 90 cities.
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